Brunei
Darussalam has one of Asia's highest per capita incomes but with the
economy growing at a rather modest and stable rate of 2% per year
during the past decade, GDP per capita has followed a downward trend
until recently. As a consequence, estimated GDP per capita in 2000 was
nearly 14% lower than in 1990, according to a WTO report on the trade
policies and practices of Brunei.

Greater
transparency would help Brunei's efforts to diversify the economy and
accelerate growthBack
to top

The WTO
Secretariat report, along with the policy statement by the Government
of Brunei Darussalam, will serve as a basis for the first trade policy
review of Brunei by the Trade Policy Review Body of the WTO on 28 and
30 of May 2001.

The
country owes its economic prosperity mainly to its abundant petroleum
and natural gas resources, whose share of GDP was 35% in 1999. In
recent years, services have played an increasingly important role in
the economy, growing from 38% of GDP in 1990 to 52% by 1999. The
services sector is also an important source of employment, employing
some 80% of the population. Brunei's main exports are petroleum and
liquified natural gas (some 89% of merchandise exports in 1998),
clothing, and machinery and transport equipment.

Petroleum's
large share of GDP has become a cause for concern in recent years, the
report says. This concern is mainly due to fluctuating international
prices, which leaves Brunei a hostage to fortune, and the prospect of
an eventual depletion of resources; Brunei's proven petroleum reserves
are expected to last another 20-25 years at current rates of
extraction. The Government has thus been encouraging economic
diversification, into both manufacturing and services, especially
financial services, tourism, and transport.

Brunei's
current efforts to diversify its economy and accelerate growth could
be enhanced, notes the report, by introducing greater transparency and
predictability in government policies, by ensuring that its WTO
obligations are reflected in national laws, and by improving its
commitments in the WTO, including under the GATS, and lowering its
bound tariff rates.

Brunei's
applied MFN tariffs are low, averaging 3.1% in 2000, zero for
agriculture, and 3.6% for non-agricultural products. There are,
however, peaks of up to 200%, which affect motor vehicles. Brunei has
bound nearly 95% of its tariff lines at the WTO. While the average
applied tariff is low, the average bound rate is 24.8%, leaving a
considerable gap between the applied and bound rates. The gap can
cause uncertainty for economic agents because it provides the
authorities with considerable scope for raising applied tariffs within
the higher bound rates; Brunei, though, has not used this scope,
including in the aftermath of the Asian economic crisis.

The
WTO report also notes that Brunei has an active industrial policy,
which has been used to develop certain priority sectors, especially in
services. In addition to government provision of infrastructure, the
measures include a five-year National Development Plan, which
allocates resources to particular activities; investment promotion in
particular targeted sectors through tax and non-tax incentives; and
the use of government resources, through its holding company, Semaun
Holdings, to invest directly in priority sectors. It appears that the
Brunei Investment Agency (BIA) is also involved in industrial
development.

Among
the key tools to attract investment to Brunei are tax and other
incentives. In the virtual absence of personal income, goods, and
service taxes, the corporate tax has become one of the main
instruments of industrial policy, offering tax exemptions of up to
eight years for companies investing in a wide range of activities.

Petroleum
and natural gas is the largest sector; production accounted for some
37% of GDP in 2000, and exports for 89% of total merchandise exports
in 1998. Services accounted for around 50% of GDP in 2000. The sector
includes social and personal services (53.7% of the services sector),
wholesale and retail trade (15.9%), banking and insurance (13.2%) and
transport and communications (9.8%). One of the key goals since the
early 1990s has been to develop financial services, especially Islamic
and commercial banking, although until recently progress on developing
supervisory and prudential regulations was slow. Other services,
notably communications and tourism, are being encouraged as part of
plans to develop Brunei as a service hub for trade and tourism by
2003.

Under
the General Agreement on Trade in Services (GATS) Brunei's commitments
are limited to four out of 12 services: business services,
communication services, financial services, and transport services.
Construction and manufacturing accounted for around 11% of GDP in
2000. The construction subsector is highly dependent on public
infrastructure spending and has suffered recently as a result of a
decline in public expenditure and the collapse of Amedeo in 1998.

The
agriculture forestry and fisheries sector is small, accounting for 3%
of GDP in 2000. Nevertheless, Brunei has endeavoured to increase
self-sufficiency in the production of agricultural products,
especially rice, mainly through extensive subsidization of
infrastructure and inputs; rice production is also subsidized through
the end-product subsidy scheme, which ensures the purchase of locally
grown paddy by the Government at an annual cost of B$200 million.

Brunei's
abundant natural resources have ensured a high standard of living for
its citizens. A combination of internal and external shocks during
1997 and 1998, however, led to a contraction of the economy in 1998.
The factors included a sharp decline in international petroleum
prices, the regional economic crisis, and the collapse of the Amedeo
Corporation, which had interests in a number of sectors, including
construction and telecommunications services.

The
report concludes that despite the provision of investment incentives,
the private sector in Brunei remains small and weak, a point noted by
the Brunei Darussalam Economic Council. This is in part because the
public sector is pervasive and provides attractive salaries with which
very few private companies can compete. However, a related factor is
the apparent lack of transparency in government policies and the
manner in which they are administered. While Brunei has ratified the
WTO Agreements, it has yet to implement legislation to bring local
laws into conformity with its international obligations; foreign
investment policies, while encouraging investment in all sectors, are
unclear about limits on foreign equity holdings and the sectors in
which investment is restricted, thereby providing scope for discretion
in government decision-making; and the Government's efforts to
corporatize and privatize public-sector companies have been slow.
Moreover, the collapse of Amedeo and allegations of mismanagement at
the BIA have served to highlight the general lack of public
accountability and governance, and possibly undermined confidence in
the economy. Brunei's efforts to diversify its economy and accelerate
growth could be enhanced by introducing greater transparency and
predictability in government policies, by ensuring that its WTO
obligations are reflected in national laws, and by improving its
commitments in the WTO, including under the GATS, and lowering its
bound tariff rates.

Note to Editors

Trade
Policy Reviews are an exercise, mandated in the WTO agreements, in
which member countries’ trade and related policies are examined and
evaluated at regular intervals. Significant developments which may
have an impact on the global trading system are also monitored. For
each review, two documents are prepared: a policy statement by the
government of the member under review, and a detailed report written
independently by the WTO Secretariat. These two documents are then
discussed by the WTO’s full membership in the Trade Policy Review
Body (TPRB). These documents and the proceedings of the TPRB’s
meetings are published shortly afterwards. Since 1995, when the WTO
came into force, services and trade-related aspects of intellectual
property rights have also been covered.

For
this review, the WTO’s Secretariat report, together with a policy
statement prepared by the Government of Brunei Darussalam will be
discussed by the Trade Policy Review Body on 28 and 30 of May 2001.
The Secretariat report covers the development of all aspects of Brunei
Darussalam trade policies, including domestic laws and regulations,
the institutional framework, trade policies by measure and by sector.

Attached
to this press release is a summary of the observations in the
Secretariat report and parts of the government policy statement. The
Secretariat report and the government's policy statement are available
for the press in the newsroom of the WTO internet site (www.wto.org).
These two documents and the minutes of the TPRB’s discussion and the
Chairman’s summing up, will be published in hardback in due course
and will be available from the Secretariat, Centre William Rappard,
154 rue de Lausanne, 1211 Geneva 21.

Located on
the Island of Borneo, Brunei Darussalam is a small, relatively open
economy with one of Asia's highest per capita incomes. But with the
economy growing at a rather modest and stable rate of 2% per year during
the past decade, GDP per capita has followed a downward trend until
recently; as a consequence, estimated GDP per capita in 2000 was nearly
14% lower than in 1990.

The
country owes its economic prosperity mainly to its abundant petroleum
and natural gas resources, whose share of GDP was 35% in 1999. In
recent years, services have played an increasingly important role in
the economy, growing from 38% of GDP in 1990 to 52% by 1999. The
services sector is also an important source of employment, employing
some 80% of the population. Brunei's main exports are petroleum and
liquified natural gas (some 89% of merchandise exports in 1998),
clothing, and machinery and transport equipment; its main export
markets are in east Asia. The value of exports as a share of GDP has
grown from around 48% in 1994 to 55% in 1998; imports as a share of
GDP declined from 43% to 37% during this period.

Petroleum's
large share of GDP has become a cause for concern in recent years.
This concern is mainly due to fluctuating international prices, which
leaves Brunei a hostage to fortune, and the prospect of an eventual
depletion of resources; Brunei's proven petroleum reserves are
expected to last another 20-25 years at current rates of extraction.
There is also concern about growing unemployment among Bruneians;
official estimates put unemployment at some 4.6% in 1999. The "Bruneization"
policy, which encourages companies to give preference to Bruneians in
their employment policies, and which was put into place to reduce
unemployment, has been successful mainly in the government and
petroleum sectors. Nevertheless, the Brunei Darussalam Economic
Council, formed in 1998 in the wake of the regional crisis and the
collapse of the local Amedeo development corporation (Brunei's largest
non-government employer), has suggested that economic growth must be
faster in order for Brunei to absorb the growing labour force. The
Government has thus been encouraging economic diversification, mainly
into manufacturing and services, especially financial services,
tourism, and transport. The private sector is being encouraged to
participate, although government salaries and benefits have made it
difficult for it to compete with the public sector despite a recent
freeze in government salaries; it is estimated that around 94% of
Bruneians in the labour force are employed by the public sector,
including state-owned enterprises.

Petroleum
also continues to form the main source of income for the Government;
corporate taxes and royalties paid by petroleum and natural gas
companies account for almost all government revenue. Moreover, Brunei
has virtually no taxes on personal incomes or on goods and services.
Tax revenue therefore fluctuates along with changing petroleum prices,
which has led to a chronic budget deficit in recent years. In the
short run, the shortfall in the budget has been met through transfers
from the Brunei Investment Agency (BIA), which handles all the
Government's investment, but whose resources and activities are not
reported, suggesting, as in other areas of public policy, a lack of
transparency and accountability. It would appear that in the medium to
long run there would be a need for tax reform to broaden the revenue
base, including through the possible introduction of sales taxes.

Trade
and Investment Policy Framework

Under
Brunei's Constitution, the Sultan is the Head of State and the
Executive. The original 1984 Constitution also provided for five
Councils to assist the Sultan. One of these, the Legislative Council,
was temporarily suspended in 1984, following which all new legislation
in Brunei has been promulgated by the Sultan as “Emergency
Orders”, which carry the force of law. All international agreements,
including the WTO Agreements, once ratified by the Sultan, must be
adopted through national legislation to be enforceable in the country.
To date, it appears that, other than legislation on intellectual
property rights (including for copyright, trade marks and industrial
designs), no changes relating to WTO provisions have been made to
national laws. Instead, WTO provisions appear to be implemented in
“good faith” or on a “best efforts” basis.

Trade
policy formulation is carried out by the Ministry of Industry and
Primary Resources, which is also responsible for implementing the
policy, with the participation of other ministries, notably the
Ministry of Finance, and appropriate agencies. Consultation with
non-governmental agencies, including the private sector, appears to
take place from time to time. Under Brunei's Constitution, the Auditor
General may present an annual audit of the Government's financial
statements to the Sultan, but there is no independent body to evaluate
government policies. The lack of data in several key areas and
activities (including national accounts, the stock of foreign assets
managed by the BIA, government finance, balance-of-payments, the
financial system and activities of government linked companies)
constitutes an impediment to both the formulation and effective
evaluation of trade and trade-related policies and measures.

Brunei
sees foreign investment as playing a key role in the country's
economic and technological development; foreign investment therefore
appears to be permitted in most sectors, including up to 100% foreign
equity investment in all sectors except those employing local
resources and those relating to national food security, for which some
local participation is required. A minimum 30% local participation
appears to be required in agriculture, fisheries, and food processing;
however, there is no clear definition of the sectors in which local
participation is required. The process of approving foreign investment
projects also appears to be somewhat opaque and therefore susceptible
to the discretion of the authorities.

To
encourage foreign investment, Brunei provides tax incentives,
particularly under the pioneer status programme, which exempts
companies from payment of corporate tax, normally 30% for
non-petroleum companies, up to a maximum of eight years, and from
payment of customs duty on plant, machinery, and equipment imports as
well as imports of raw materials not available in Brunei but which are
to be used by the company in its plants. Given that around 95% of
corporate tax revenue in 1999 was raised from petroleum and natural
gas companies, it would appear that most companies operating in the
non-oil sector are beneficiaries of such programmes.

Trade
and trade-related reforms

Brunei's
applied MFN tariffs are low, averaging 3.1% in 2000, zero for
agriculture, and 3.6% for non-agricultural products. There are,
however, peaks of up to 200%, which affect motor vehicles; in
addition, 87 tariff lines at the HS nine-digit level are subject
to specific duties and are excluded from these tariff averages. The
specific tariffs, which apply mainly to tobacco, alcohol, and
petroleum products, are due to be converted to ad valorem rates in
2001. As they tend to conceal relatively high ad valorem equivalents,
it is likely that the inclusion of these specific duties in the tariff
average would raise Brunei's overall level of tariff protection.
Tariff escalation is especially pronounced in wood and furniture,
fabricated metal products and machinery, and chemicals, providing
higher effective protection to these industries; by contrast, for wood
and furniture, the tariff on unprocessed and semi-processed products
is higher than for fully processed products suggesting greater
protection for raw and intermediate goods than for finished products.

Brunei
has bound nearly 95% of its tariff lines at the WTO. While the average
applied tariff is low, the average bound rate is 24.8%, leaving a
considerable gap between the applied and bound rates. The gap can
cause uncertainty for economic agents because it provides the
authorities with considerable scope for raising applied tariffs within
the higher bound rates; Brunei has not used this scope, including in
the aftermath of the Asian economic crisis.

As
a member of the Association of South East Asian Nations (ASEAN) Common
Effective Preferential Tariff (CEPT) scheme, which is the main
instrument of the ASEAN Free-Trade Area, Brunei has been reducing its
preferential tariff rates on products included under CEPT; tariff
reductions within the 0-5% range on these products will be completed
by 2002. In 2000, Brunei's average CEPT tariff was 1.9% and is due to
decline to 1.6% by 2002. Products excluded from the CEPT reduction
include tea, coffee, tobacco, and alcohol, which have specific rates
of duty, and motor vehicles, the average rate for which will remain
unchanged, at 21%, in 2002. It is not clear when tariffs for tea and
coffee, currently on the sensitive list of exceptions, will be
included. Brunei's CEPT rates on information technology products are
higher than their MFN rates; it appears that MFN tariffs on these
products were removed to encourage investment in the information
technology sector and MFN rates are applied when they are lower than
CEPT rates.

While
Brunei's tariff barriers are relatively low, a number of imports and
exports are subject to prohibitions, restrictions, and licensing
requirements. Imports of opium, firecrackers, vaccines from Chinese
Taipei, and arms and ammunition are prohibited for health, security,
and moral reasons. Products subject to import restrictions include
rice, sugar, and salt, for the purpose of maintaining food supplies;
rice appears to be subject to an import monopoly and is bought mostly
from Thailand, by the Department of Information Technology and State
Stores in the Ministry of Finance, under a government-to-government
contract. Other products subject to import restrictions include beef,
poultry and alcoholic beverages (for religious reasons), plants and
live animals, converted timber, and used vehicles five years and older
(for safety reasons); imported eggs must be stamped to distinguish
them from the local product, apparently to stop the smuggling of eggs
that do not meet sanitary requirements and to ensure that all imported
eggs meet sanitary requirements. There also appears to be a
"temporary" ban on imports of cement, to protect local
producers; a similar ban on imports of roofing material was recently
lifted. Import licences appear to be required for, inter alia,
telecommunications equipment, medical products, chemicals, and live
plants and animals. Although Brunei maintains no import quotas,
imports of meat and poultry are monitored and subject to an annual
ceiling to avoid excess supply in the local market.

Currently,
there are no mandatory standards (technical regulations) in Brunei,
only 27 voluntary standards that pertain to construction. Nor is there
a national body for setting standards in Brunei; the Construction
Planning and Research Unit (CPRU), based in the Ministry of
Development, is the focal point for standards and conformity
assessment activities.

A
few products are also subject to export restrictions: timber, oil
palm, rice, and sugar; the restrictions are maintained mainly to
ensure security of domestic supplies, although in the case of timber,
the restrictions are also maintained apparently for environmental
reasons.

Other
measures affecting trade

Brunei
has an active industrial policy, which has been used to develop
certain priority sectors, especially in services. In addition to
government provision of infrastructure, the measures include a
five-year National Development Plan, which allocates resources to
particular activities; investment promotion in particular targeted
sectors through tax and non-tax incentives; and the use of government
resources, through its holding company, Semaun Holdings, to invest
directly in priority sectors. It appears that the BIA is also involved
in industrial development.

One
of the key tools to attract investment to Brunei is tax and other
incentives. In the virtual absence of personal income, goods, and
service taxes, the corporate tax has become one of the main
instruments of industrial policy, offering tax exemptions of up to
eight years for companies investing in a wide range of activities
under the pioneer status programme. At the end of 1999 there were 21
companies under the programme. Financial assistance for small and
medium-sized enterprises (SMEs) is also provided, most recently
through a B$200 million working capital credit fund, launched in
January 2001. The fund is targeted at SMEs active in areas such as
construction, tourism, and information technology.

In
addition to investment incentives, the Government's holding company,
Semaun Holdings, which is answerable to the Minister of Industry and
Primary Resources, invests directly in certain sectors. Semaun
Holdings, which was established as a commercial company in 1994,
appears to dominate the manufacturing sector through its joint
ventures with foreign partners and subsidiary companies. Little
information is available on Semaun's contribution to GDP or its annual
accounts, reinforcing the notion of a certain lack of transparency and
public accountability in government policies. The Government also
holds equity in key companies, including in the petroleum and natural
gas sector.

Apart
from investing Brunei's petroleum and gas revenues, and ensuring that
the earnings on the funds entrusted to it can, when necessary, meet
any fiscal shortfall, the Brunei Investment Agency (BIA) seemingly
plays an important role in Brunei's industrial development. This
occurs notably through the companies it has taken over from the Amedeo
Development Corporation (ADC) following the latter's collapse. The
full extent of the BIA's role in the economy is far from clear,
however, because the Agency's operations, including its management of
the funds and holdings in various enterprises, are shrouded in
secrecy; the BIA does not publish an annual report, for example. This
lack of transparency raises the broad question of the Agency's
accountability to the public.

In
light of the chronic fiscal deficit, efforts to reduce the size of the
Government have been ongoing since the early 1990s and include "corporatization"
and privatization of some public sector companies. The measures taken
thus far, however, have been slow and ad hoc; the Seventh National
Development Plan suggested that privatization would be pursued only
after careful consideration of any negative effects, including on
employment and prices. The authorities state, nevertheless, that
privatization will top the agenda in the Eighth National Development
Plan.

As
the Government is the largest operator in the economy, its policies on
procurement and competition also have an impact on trade. Government
procurement policies have recently reduced the threshold for tenders
from B$25,000 to B$2,000. Procurement is open to foreign suppliers
registered in Brunei although there is, theoretically, a 15% price
preference margin for local suppliers, which may not be applied in
practice. There is no system by which suppliers may appeal a decision
made by the Tenders Board other than appealing to the Board itself.
Nor does Brunei have a law to combat anti-competitive practices, be
they in the private or public sector. To protect consumers, price
controls are maintained on a number of products, including rice,
sugar, bread, milk for infants, tea, coffee, motor vehicles, and
cigarettes. The retail price of petrol has been frozen since 1978,
with any difference in the price charged being subsidized by the
Government. Distribution controls are also maintained for products
imported by the Government, such as rice, which is distributed to
local retailers under a quota system.

Sectoral
Policies

Petroleum
and natural gas is the largest sector; production accounted for some
37% of GDP in 2000, and exports for 89% of total merchandise exports
in 1998. It is also an important source of tax revenue: while the rate
of corporation tax is normally 30%, petroleum and natural gas
companies are subject to taxes of 55% and 50%, respectively, and
royalty rates from 8% to 12% of production. In addition, petroleum
imports face specific tariffs ranging from B$0.11 to B$0.44 per
decalitre. The main producer is Brunei Shell Petroleum (BSP), jointly
owned by the Government of Brunei and the Asiatic Petroleum Company
Ltd. (part of Royal Dutch Shell); a new field, operated by Elf
Petroleum Asia, commenced natural gas production in 1999. An
additional 12,000 square kilometres have recently been opened for oil
and gas exploration, which is expected to begin in 2002. Brunei
exports petroleum and liquified natural gas (LNG) mainly to the United
States (28%), Japan (19%), and the Republic of Korea (15%). Domestic
retail prices of petrol have been subject to restrictions under a
Price Stabilization Agreement (PSA) signed between the Government and
British Shell Marketing (BSM), the local distributor of petroleum
products in Brunei (jointly owned by the Government and Royal Dutch
Shell) since 1978; any difference between the price set by BSM and the
retail price is subsidized by the Government. The prospect of resource
depletion in the long run and fluctuations in international petroleum
prices has led to efforts to reduce dependence on this sector, with
mixed results.

Services
accounted for around 50% of GDP in 2000. The sector includes social
and personal services (53.7% of the services sector), wholesale and
retail trade (15.9%), banking and insurance (13.2%) and transport and
communications (9.8%). One of the key goals since the early 1990s has
been to develop financial services, especially Islamic and commercial
banking, although until recently progress on developing supervisory
and prudential regulations was slow. The Financial Institutions
Division (FID) of the Ministry of Finance is the regulator, and
publishes guidelines on minimum paid-up capital, cash balances, and
capital adequacy ratios. Off-site supervision and a requirement for
banks to submit their audited statements to the FID on a regular basis
were introduced recently to ensure the soundness and stability of
banks. With the launching of the Brunei International Financial Centre
(BIFC) in 2000, Brunei hopes to become a regional banking and business
centre, and new laws have been enacted, including against money
laundering; international accounting standards will also be made
compulsory for all companies by 2002, thereby improving transparency
and attracting companies to the BIFC.

Other
services, notably communications and tourism, are being encouraged as
part of plans to develop Brunei as a service hub for trade and tourism
(ShuTT) by 2003. The Government intends to involve the private sector
increasingly in these sectors, although there appears to have been
little interest in such involvement. Telecommunications is dominated
by the public sector, with the Government department Jabatan Telekom
Brunei (JTB) providing all fixed line telecommunications services, and
DSTCom, also currently owned by the Government, providing mobile
services. JTB is also the regulator, although legislation to separate
its regulatory functions from its operational activities is planned;
in the meantime, all regulatory issues are handled by an interim body
in the Ministry of Communications. Efforts are being made to develop
an air cargo trans-shipment centre and a regional refuelling centre,
as well as a regional trans-shipment port. Tourism is underdeveloped
but Brunei hopes to develop activities such as eco-tourism, adventure
and culture tourism, theme parks, and cruising.

Under
the General Agreement on Trade in Services (GATS) Brunei's commitments
are limited to four out of 12 services: business services,
communication services, financial services, and transport services.
Brunei's Article II (MFN) exemptions include limits on future foreign
investment liberalization, which would be subject to the discretion of
the authorities, and a preference for recruiting labour from
traditional sources of supply as well as sector-specific exemptions.
The commitments tend to reflect current policy in the sector, with
little suggestion of further liberalization in the near future. In
particular, it is curious that Brunei has not made commitments in
sectors such as transport and tourism, which it is trying to develop
further and in which policies appear to be relatively liberal.

Construction
and manufacturing accounted for around 11% of GDP in 2000. The
construction subsector is highly dependent on public infrastructure
spending and has suffered recently as a result of a decline in public
expenditure and the collapse of Amedeo in 1998. The Government has
since attempted to rejuvenate the sector, on the recommendations of
the Brunei Darussalam Economic Council, by contracting low-cost
housing projects and by splitting large contracts so as to make them
accessible to small-scale local construction companies. Manufacturing
activities are mainly confined to clothing and food processing. Other
industries, including plywood, furniture making, pottery, tiles,
cement, and chemicals, are being targeted to diversify the production
base. Free or subsidized infrastructure and inputs as well as tax
incentives are provided for targeted industries. The Brunei Industrial
Development Authority (BINA), in the Ministry of Industry and Primary
Resources, assists investors in obtaining access to facilities and
investment incentives. The Government also invests directly in
targeted activities through its holding company.

The
agriculture forestry and fisheries sector is small, accounting for 3%
of GDP in 2000. Nevertheless, Brunei has endeavoured to increase
self-sufficiency in the production of agricultural products,
especially rice, mainly through extensive subsidization of
infrastructure and inputs; rice production is also subsidized through
the end-product subsidy scheme, which ensures the purchase of locally
grown paddy by the Government at an annual cost of B$200 million.
There also appears to be a government import monopoly for rice paddy.
Foreign investment in the sector is seemingly encouraged, although it
is subject to a 70% foreign equity limit. Despite the extensive
subsidies, further investment in the sector does not appear to have
been forthcoming, mainly because of better employment opportunities
elsewhere, notably in the public sector, lack of marketing outlets,
and unstable prices.

Trade
policies and trading partners

Brunei
is a founding Member of the WTO and had been a contracting party to
the GATT since December 1993. Brunei's trade and investment policies
are strongly linked with those of its regional trade and investment
partners, principally members of the Association of South-East Asian
Nations (ASEAN) and the Asia Pacific Economic Cooperation (APEC)
forum; indeed, the Government appears to attach greater importance to
ASEAN and APEC than to the WTO.

Brunei
joined ASEAN in 1984 and will reduce tariffs included in its CEPT
tariff to the 0-5% range by 2002; all intra-ASEAN tariff barriers will
be removed by 2015. Products originating in other ASEAN countries also
have preferential access to Brunei through the ASEAN preferential
rules of origin, under which products must have at least 40% ASEAN
content. Brunei is also an active participant in other ASEAN fora,
including the ASEAN Industrial Cooperation Scheme (AICO), the ASEAN
Investment Area (AIA), and the recently signed e-ASEAN Framework
Agreement.

Since
1993, imports from other ASEAN countries have grown rapidly, from 30%
to 48% of total merchandise imports in 1998. This suggests that the
lowering of tariff and non-tariff barriers to trade within the ASEAN
region as a result of the ASEAN Free-Trade Agreement may have led to
significant trade diversion.

In
the APEC forum, Brunei, as other developing country members, intends
to implement free trade and investment by 2020, and was a participant
in the early voluntary sectoral liberalization (EVSL) scheme. As chair
of APEC in 2000, Brunei emphasized, inter alia, the importance of
continued efforts to advance trade and investment liberalization in
the region, the development of human resources and small and
medium-sized enterprises, and strengthening
information-technology-based sectors. The APEC meeting in November
2000 called for the launching of a new round of multilateral trade
negotiations, albeit one that would be balanced and address the
concerns of all WTO Members, especially the least developed and
developing countries.

Brunei,
along with other partners in the region, also participates in other
regional agreements, such as the Asia-Europe Meeting (ASEM), which
held its third meeting in Seoul, Korea, in October 2000. Brunei is a
member of the Brunei Darussalam, Indonesia, Malaysia, Philippines–East
ASEAN Economic Growth Area (BIMP–EAGA), which aims to pool
complementary resources in the region to develop priority sectors,
including air and maritime linkages, construction, fisheries, and
tourism.

Outlook

Brunei's
abundant natural resources have ensured a high standard of living for
its citizens. A combination of internal and external shocks during
1997 and 1998, however, led to a contraction of the economy in 1998.
The factors included a sharp decline

in
international petroleum prices, the regional economic crisis, and the
collapse of the Amedeo Corporation, which had interests in a number of
sectors, including construction and telecommunications services.
Although the shocks were cushioned by transfers from the BIA,
fluctuations in international petroleum prices in particular have
highlighted the need for fiscal reform and policies to encourage
economic diversification and private-sector participation in the
economy.

Despite
the provision of investment incentives, the private sector in Brunei
remains small and weak, a point noted by the Brunei Darussalam
Economic Council. This is in part because the public sector is
pervasive and provides attractive salaries with which very few private
companies can compete. However, a related factor is the apparent lack
of transparency in government policies and the manner in which they
are administered. While Brunei has ratified the WTO Agreements, it has
yet to implement legislation to bring local laws into conformity with
its international obligations; foreign investment policies, while
encouraging investment in all sectors, are unclear about limits on
foreign equity holdings and the sectors in which investment is
restricted, thereby providing scope for discretion in government
decision-making; and the Government's efforts to corporatize and
privatize public-sector companies have been slow. Moreover, the
collapse of Amedeo and allegations of mismanagement at the BIA have
served to highlight the general lack of public accountability and
governance, and possibly undermined confidence in the economy.
Brunei's efforts to accelerate economic growth and diversification
could be enhanced by introducing greater accountability and
predictability in government policies, by ensuring that its WTO
obligations are reflected in national laws, and by improving its
commitments in the WTO, including under the GATS, and lowering its
tariff bindings.

TRADE
POLICY REVIEW BODY: BRUNEI-DARUSSALAM
Report by the Government  Part III

Trade
Policy Framework

Brunei
Darussalam signed the Final Act Embodying the Results of the Uruguay
Round of Multilateral Trade Negotiations in April 1994 in Marrakesh. All
the agreements embodied in this Act form part of Brunei’s written laws
upon incorporation through enabling or implementing legislation.

The
objective of Brunei’s trade and industrial policies is to develop
non-traditional exports such as processed agricultural goods,
resource-based manufactures and hi-tech manufactures (including ICT
products), as well as service industries such as business and
financial services and tourism.

Brunei’s
tariff structure is liberal and transparent - four-fifths of tariff
lines are duty-free and nearly 99% are ad valorem rates. Tariffs have
been eliminated or progressively reduced over the years, with the
result that the average MFN tariff is currently 3.1%, whilst customs
duties accounted for 6.8% of tax revenue (1.2% of GDP) in 1999,
declining from 13.3% (2.2% of GDP) in 1995. Efforts are also being
made to convert some of the specific tariffs into ad valorem rates.

Peak
tariffs apply to some categories of motor vehicles to reduce the
already high car ownership rate and prevent the accompanying problems
of traffic congestion and pollution. There is no domestic auto
manufacturing industry.

Non-tariff
measures are few and maintained only to discharge Brunei’s
obligations under international commitments, or for public health and
safety, environmental, religious, or national security considerations.

The
Department of Information Technology and State Stores administers the
importation and stockpiling of sugar and certain types of rice, to
ensure security of supplies and price stability.

Brunei
Darussalam does not maintain any WTO-inconsistent trade-related
investment measures. A local equity requirement of not less than 30%
applies to joint ventures in agriculture, fisheries and food
processing, only if government facilities such as government-developed
industrial sites are applied for.

The
current Investment Incentive Act is in the process of revision to
widen its scope beyond pioneer manufacturing industries, to include
among other things pioneer services, all established and expanding
enterprises, trade and investment promotions, foreign loans for
capital, venture capital, export-import services and hi-tech
industries. In addition, the Government is actively pursuing Bilateral
Investment Treaties and Double Taxation Agreements with interested
countries.

The
existing Brunei Economic Development Board Act is being revised to
strengthen its powers for the promotion of foreign direct investment,
development of joint ventures in strategic sectors and the provision
of efficient services to investors.

The
Brunei Investment Agency is also active in promoting foreign direct
investment. As part of its overall investment objective to diversify
its investment activities, it has recently begun to explore investment
opportunities in commercially viable companies within Brunei
Darussalam.

Semaun
Holdings is a private limited company wholly owned by His Majesty’s
Government and placed under the jurisdiction of the Ministry of
Industry and Primary Resources. Its mission is to spearhead industrial
and commercial development through direct investment in key industrial
sectors in the interest of Brunei Darussalam. Being incorporated under
the Companies Act, it complies with all legal requirements, including
annual accounts.

A
new Industrial Coordination Order will facilitate better coordination,
especially of licensing and industrial building approval. At the same
time, the Government is also currently reviewing and revising
restrictions on the ownership and development of industrial land and
its use as collateral to raise financing.

The
services sector is an area of focus in efforts to diversify the
economy and the Government will thus be formulating a services sector
policy.

Brunei
Darussalam is party to the Convention Establishing the World
Intellectual Property Organization (WIPO). All relevant laws for the
protection of intellectual property rights have been enacted. With the
exception of the Patent Order, the relevant intellectual property laws
came into effect as of May 2000.

No
national standards body exists in Brunei Darussalam. However, the
Construction Planning and Research Unit (CPRU) at the Ministry of
Development is the focal point for standards and conformity assessment
activities. The Resource and Standards Centre of the Ministry of
Industry and Primary Resources is mandated to act as a quality control
and accreditation centre for local products as a guarantee to local
acceptance and to meet international standards. It is strengthening
its ability to fulfil this mandate by re-organising itself to create a
Product Development and Standards Division that will develop, adopt or
modify product and service standards and quality certification schemes
in the primary resources, manufacturing and tourism and
tourism-related industries. The Centre is now in the process of
negotiating a Memorandum of Understanding with SIRIM Sdn Bhd Malaysia
that will hasten the Centre’s organisational ability to act as a
quality control and accreditation centre.

National
standards are available only in the construction sector. It is the
policy of Technical Committees for the development of standards to
adopt international standards where relevant and there is an ongoing
exercise to review the alignment of national standards with existing
relevant international standards in line with ISO/IEC Guide 21:1999.

Brunei’s
participation in the ASEAN Free Trade Area (AFTA) and the
Brunei-Indonesia-Malaysia-Philippines East ASEAN Growth Area (BIMP-EAGA)
is aimed at overcoming the constraints of a small domestic market, as
well as capitalizing on resource complementarity and geographical
proximity.

Brunei
Darussalam is also a member of ASEM and APEC, which, among others,
holds informal consultations on WTO matters, thus complementing and
reinforcing efforts to strengthen the multilateral trading system. As
host of APEC in 2000, Brunei Darussalam helped to steer the grouping
in addressing a balanced agenda vis-à-vis Trade and Investment
Liberalization and Facilitation (TILF), and Capacity Building, thereby
reflecting the interests of all APEC members.